COPPOLA: What’s interesting about that,
though, is there really hasn’t been any of
that maturity to speak of for the past couple
of years. We’re all expecting it. A lot of us
tried to position ourselves to take advantage
of that from either a debt or an equity perspective. The capital markets have really
come back. So while that hasn’t played out
yet, it may perhaps play out over the next
couple of years as those loans mature. The
capital markets are pretty healthy today.

I’ve been doing the panel circuit this
year, and the common theme has been too
much capital chasing too few deals. When
did I last hear that? It wasn’t that long ago.
So when I look at my business for 2012, the
rapidity with which everything has been
occurring this cycle has been interesting. As
a life company lender, I was sitting with all
the CMBS lenders, and at the beginning of
the year, we’re going around the room, and
everybody’s kind of hanging their heads.

Yet we’re the one group that’s saying,
well, this is kind of good. So we actually
executed on some really great business in
the first half of the year, but come July or so,
it looked like the light just switched. All of a
sudden, the conduits are beating our
spreads, on both the deals we were and
weren’t chasing—it’s really unbelievable

We executedon some greatbusiness inthe first half.Come July, allof a sudden,the conduitsare beating our spreads, onboth the deals we were andweren’t chasing.”

RICHARD COPPOLA, TIAA-CREF

how aggressive the bids are on that stuff.

Life companies tend to have that herd
mentality. We all said, “I’m going to go do B
notes and mezz behind the conduits”
because that was good business. You can stay
in core assets, and you can get a pretty good
yield. Maybe it’s high single digits in the first
half of the year, but we all said that at the
same time. A couple of deals got done, and
that market has gone away. The conduits
now are securitizing the entire transaction.

Today, though, borrowers aren’t necessarily looking to push leverage so much. So if
the deal goes off at a 50% LTV, there’s not a
subordinate piece left. There’s not a slice to
invest in. The whole thing gets securitized.
We’re seeing that day in and day out, which
is really challenging as we try to find places
to invest and find yield. We did a small mezz
deal in Manhattan in the first half, $30 million on an existing conduit transaction that
actually permitted mezz. It was too expensive to defease, but the last dollar leverage
was less than 50%. We were able to earn
about a 7% yield on a six-year transaction.

We also participated in a small mezz deal
for an office asset in Philadelphia—the last
dollar leverage was 65%. It was a thinner
slice, but that deal was at LIBOR plus 7.75%
yield, a stable rent roll, etc.

We started the year booking probably
low- to mid-4% coupons on 10-year deals at
50-55% leverage on the best-of-the-best in
Manhattan and DC. Now, we’re talking
about perhaps 3.5% to 3.75% in Midtown
Manhattan within just 12 months. ◆

Visit GlobeSt.com in the coming weeks to read
more of the conversation between these institutional industry heavyweights.